Investors call for stronger climate investment policies
GLOBAL – The Institutional Investors Group on Climate Change (IIGCC) has called on European policymakers to create an investable low-carbon energy market by urgently tabling proposals for detailed policy.
The group of investors, worth a combined €7.5trn, signalled its support for the EU's proposed target of a 40% reduction in greenhouse gas emissions by 2030.
But in its response to the European Commission's 2030 Climate and Energy Green Paper, investors have said they would like to see draft legislation in place before the replacement of the current Commission and EU parliamentary elections next year.
The longer investors have to wait for policy certainty, the stronger the economic pressure to defer investment decisions, the group said.
U-turns on support for renewables and the collapse of the carbon price have meant that investors are losing confidence in Europe as a place to invest in energy.
The IIGCC also emphasised the need for strong and reliable carbon price signals.
While the compromise backloading vote on the Emissions Trading Scheme last week was welcome, investors believe the permanent removal of the structural surplus of carbon allowances is required.
Investors would also welcome the introduction of a mechanism to reduce the risk of surpluses emerging in the future and have urged the Commission to review how other cap-and-trade schemes around the world – such as South Korea and California, or even China – have addressed this issue.
Stephanie Pfeifer, chief executive at the IIGCC, which represents more than 80 of Europe's largest investors, told IPE: "It is probably still possible to reach the 40% reduction in greenhouse gas emissions target by 2030.
"But it is only possible with a lot more investment, and this will only come with the right policy in place. The longer we wait, the harder it will be, and the more investment is needed."
She pointed out that transitioning to a low-carbon economy require investment of €1trn by 2020, increasing to perhaps €7trn in the next 40 years, according to the Commission's own projections.
"New capital requirement rules mean institutional investors will need to provide more of this capital, but, to do so, they will need clear policy signals," she said.
"Without clear policy signals, allocations to infrastructure, especially low-carbon infrastructure, will be limited. Investors are therefore calling on the EU to put in place stable, long-term climate and energy policies to make its vision of a low-carbon future investable."
In their response, institutional investors have also expressed concern that policy drivers of both energy efficiency and renewable technologies in Europe are unnecessarily fragmented.
Investors would therefore like to see more emphasis on pan-European instruments that work in tandem with the ETS.
In addition, they have called for the Commission to consider how it might take steps to block further retroactive changes by EU member states to their renewables support packages and called for Europe to increase the ability of institutional investors to provide capital to energy infrastructure by allowing it to be included in tax efficient and liquid investment vehicles such as real estate investment trusts and master limited partnerships.
The full response can be found here.
In other news, the world's 1,000 largest asset owners, including about 800 pension funds, have been challenged to disclose more detail of how each is managing climate risk.
The Asset Owners' Disclosure Project (AODP) has distributed its second global independent survey to the 1,000 funds responsible for more than $60trn (€46trn) in retirement savings across 63 countries.
Fifty questions seek disclosure on how each is avoiding the looming carbon bubble in their fund portfolios.
Responses will be researched, collated and scored, with the 2013 index being published for all funds later this year.
Julian Poulter, AODP executive director, said: "Pension funds are long-term investors facilitating hundreds of millions of peoples' plans for their later life. Fund trustees have the basic obligation to look after these nest eggs by managing all the known risks.
"Smart fund trustees know the risks inherent in fossil fuel-related assets and are getting ahead of the curve when it comes to disclosing how they manage climate risk, including by investing in low-carbon assets to rebalance those risks.
"Indeed – this is not about moral responsibility anymore but fundamental investment methodology. It seems highly likely that it is also a legal responsibility."
The AODP survey focuses on five core categories – transparency, risk management, investment-chain alignment, active ownership and low-carbon investment.
It includes asset owners in all regions of the world.
Last year's survey and index are available here.